Commercial property insurance UK: buildings, contents and the sums that matter
What a commercial property policy is actually made of
Commercial property insurance covers the physical assets a business trades from and with: the buildings, if you own them; tenant’s improvements and fit-out, if you lease them; contents, plant and machinery; and stock. It is normally written as sections of a commercial combined or package policy rather than as a standalone contract, which is why the individual sums insured are so easy to leave unexamined at renewal.
Each section carries its own sum insured, its own basis of settlement and, usually, its own exposure to average. Getting the cover right is much less about which perils are listed — on a modern all-risks wording those are broadly similar — and much more about whether the numbers underneath would survive a claim. If you let the premises out rather than trading from them, our property owners insurance UK page routes you to the landlord side of the same market.
Reinstatement cost is not market value
The buildings sum insured should be the cost of rebuilding the property from scratch on the same site, not what it would sell for. That figure includes demolition and site clearance, debris removal, architects’ and surveyors’ fees, and the cost of complying with current building regulations on reinstatement — which for an older building can be a substantial addition. It excludes the land.
Market value and reinstatement cost can differ by a very large margin in either direction, and they move independently. A cheap industrial unit in a weak location can cost far more to rebuild than to buy. A prime-location office can be worth far more than its rebuilding cost. Neither figure tells you the other. The only reliable route on a property of any size is a reinstatement cost assessment, revisited periodically rather than indexed forward indefinitely. We set out the method on buildings underinsurance and reinstatement cost explained and you can start with our underinsurance check.
Contents, plant and stock: three different bases of settlement
Contents and machinery are typically insured on a reinstatement basis — new for old — but that usually depends on the item actually being reinstated, and there is often an indemnity fallback if it is not. Older plant sometimes has to be insured on an indemnity basis, which means depreciation is deducted.
Stock is different again. It is normally settled at cost to you, not at selling price, and the sum insured needs to reflect peak stock rather than the average across the year. A retailer or a manufacturer with a strong seasonal cycle who insures the annual average is underinsured for the months when a loss would hurt most; a seasonal increase clause is the standard fix and it is frequently missing.
Average, and how it bites on partial losses
The average condition allows an insurer to reduce a claim in proportion to any shortfall in the sum insured. The point most buyers miss is that it applies to every claim, not just a total loss: a modest fire in a building insured at seventy per cent of its true reinstatement cost can be settled at roughly seventy per cent. Some wordings soften this with a tolerance margin, or by allowing a day-one uplift where a professionally assessed declared value is stated and the policy then insures a stated percentage above it. That is a good structure, but it only works if the declared value was genuinely assessed — a guess with an uplift on top is still a guess.
The perils that decide whether you get quoted at all
On a commercial risk, three exposures dominate the underwriting conversation. Flood is now assessed at address level and can be excluded, sub-limited or heavily excessed rather than simply loaded; if the property has surface water or river exposure, mitigation evidence and flood resilience work genuinely change the outcome (flood risk and commercial property insurance). Subsidence turns on soil type, tree proximity and any history of movement, and past claims or monitoring records need to be disclosed properly rather than glossed over (subsidence and commercial property insurance). Escape of water is the volume peril in commercial property and underwriters increasingly want to know about pipework age, isolation and leak detection.
Terrorism is worth naming separately. Damage by terrorism is commonly excluded from the standard commercial property section in the UK and has to be bought back, which is a live question for city-centre premises and for anyone whose lease or lender requires it (terrorism insurance).
Occupied, part-let or empty
Policy conditions change with occupancy. If part of your building is let or sublet, the trade of that occupier affects the whole risk and has to be disclosed. If part of it is empty, the unoccupancy condition attaches to that part — notification, precautions, and usually a reduction to fire, lightning, explosion and aircraft perils only, which strips out escape of water and malicious damage precisely when they are most likely (unoccupied property insurance).
Refurbishment and contract works are the third case. Once contractors are on site beyond minor decoration, the existing property policy often restricts or excludes cover for the works and sometimes for the existing structure, and a contract works or joint names arrangement is needed instead (joint names insurance).
If you lease your premises, read the lease first
An occupier under a full repairing and insuring lease usually does not insure the structure — the landlord does, and recharges the premium. What the occupier insures is fit-out and tenant’s improvements, contents, stock and their own liability and business interruption. The recurring problem is fit-out that nobody insures: the tenant assumes the landlord’s buildings cover picks it up, and the landlord’s sum insured was set before the fit-out existed. Establish it in writing (tenant use and your property insurance).
Business interruption belongs alongside property
Property cover rebuilds the premises and replaces the kit; it does nothing about the income lost while that happens or the overheads that keep running. That is business interruption, and it is normally triggered by insured damage under the property section — so a gap in the property cover becomes a gap in the BI cover automatically. The sums and the indemnity period need to be set on their own terms (business interruption insurance).
How Apex approaches commercial property
We look at the buildings, the leases and the numbers before we look at the premium, because that is where commercial property programmes actually fail. Where a sum insured looks inherited rather than assessed, we say so. Where a peril is going to be the hard part of the placement, we deal with it in the presentation to underwriters instead of leaving it to be discovered. Bristol-based and FCA-regulated — and if you are looking for cover locally, see commercial property insurance in Bristol.
Frequently asked questions
What sum insured should I put on my commercial building?
The full cost of rebuilding it on the same site, including demolition, debris removal, professional fees and compliance with current building regulations. That is not the market value and not the purchase price. On any property of size, a reinstatement cost assessment is the reliable route; indexing an old figure forward indefinitely is not.
Does average apply if the loss is only partial?
Yes. That is the point most buyers miss. If the sum insured is below the true reinstatement cost, the insurer can reduce any claim in proportion, including a small one. Some wordings allow a tolerance margin or a day-one uplift above a professionally declared value, which reduces the exposure but does not remove the need for an accurate figure.
Is flood or terrorism cover included as standard?
Flood is usually included on an all-risks commercial wording but can be excluded, sub-limited or given a large excess where the address carries real exposure. Damage by terrorism is commonly excluded from standard UK commercial property cover and bought back separately, which matters if a lease or lender requires it.
I lease my premises. What do I actually need to insure?
Normally your fit-out and tenant improvements, contents, plant and stock, plus your own liability and business interruption. The landlord usually insures the structure under a full repairing and insuring lease and recharges the premium. The gap to watch is fit-out: it is frequently outside both policies because each side assumed the other had it.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.